For a corporate controller, fair value may mean that certain valuation discounts should be applied to the value of an uncontrolled or “minority” stake. These discounts reflect the non-dominant nature of the interests and may also reflect the lack of marketing of an interest in a private company. When these discounts are applied, the value of a non-dominant interest is significantly less than the value of a dominant interest. To avoid pitfalls in the development of sales and sale contracts, contractors should consult with both lawyers and accountants and appraisers to ensure that the language of the purchase-sale contract is intended for owners and that all owners understand the impact of these definitions. It is tempting to choose a formula for stock pricing when business partners come and go. Finally, a formula is easy for everyone to understand and applied at a lower cost, at least in theory. If you are satisfied with a price, every prize, then congratulations – the work done. But the goal is to achieve a fair price for all parties involved. This article addresses some of the unforeseen problems with the buy-sell pricing formulas that we often encounter as valuation experts. The importance of clear language can be summed up by an example drawn from the authors` professional experience: a sales contract between the owners of a holding company had a clause that summarizes: “The expert will determine fair value and the parties will act on the basis of that value. However, if such a party does not agree with fair value and the transaction has not been completed within 90 days of the date of the expert`s report, the transaction price is fair value added. In this case, “fair value” had some meaning and “fair market value” had a totally different meaning. The difference between the value calculated on the basis of fair value and the “fair market value” basis was millions of euros.
Of all the potential threats to the success of a family business, one of the most destabilizing can come from within the family – if a single owner or group of owners tries to sell its stake to an outside party. While this is a rare event when it occurs, it can bring suffering to the system, for example. B abrupt financial consequences, embarrassment to family and businesses, and violations of family relationships.